Unexpected but it still happened:

No-one would have thought that the Aral Sea would ever dry out.
And no-one would have thought in the 1990s that the framework conditions for pension obligations of GmbH managers would change to such a degree that they could no longer fully meet their target. Both happened.

What it is about:

For shareholders and directors, a company pension scheme in the form of a pension commitment is still a solid foundation for individual old-age provision. But: commitments must be checked especially on their intrinsic value and future security, and if necessary must be adjusted and rearranged.
Because the actuarial interest rate will most likely remain low in coming years, pension provisions will rise considerably and will present a heavy burden for medium-sized enterprises. This burden will be noticeable, particularly in the form of extraordinary provisions to the reserves, and according to the HGB (German Commercial Code) must be shown in the profit and loss account with full effect. That means that the high provisions visibly affect the results.

Reasons for restructuring:

• Sale of shares and external financing
• The buyer does not wish to take over the pension liabilities
• Pension payment should not depend on the success of the successor
• No burden to be placed on the next generation
• Easing of credit financing
• The GmbH can no longer finance the pension entitlements
• No successor is forthcoming and the business folds

Possible ways of restructuring

… doing nothing is the greatest trap!

Outsourcing

Transfer of the already earned pension entitlements to a pension fund.
Benefits:

• Reversal of provisions for pensions to the extent of the earned entitlement in the tax balance sheet and the financial reporting requirements (HGB)
• Out-financing of the earned entitlement against a one-off contribution (with retention of the existing reinsurance policies)

Transfer of pension entitlements which have yet to be earned (future-service) to a support fund.
Advantages:

• Immediate reversal of pension provisions to the value of the claims yet to be earned in the tax balance sheet
• No burden on the financial results when benefits become due by outsourcing of the supply risks.

Partial Renouncement

Renouncement of the pension entitlement still to be earned. By renouncing the future-service, the pension commitment is frozen at the value already earned.

Conversion of pension commitments to capital commitments

The pension obligation is changed from a pension obligation to a capital obligation. Due to the elimination of the “longevity risk”, the need for capital is reduced to that needed to finance the obligation.

Out-Financing

The existing obligation is carried on unchanged. The financing of the pension commitment is adjusted to the increased life expectancy and the reduced interest level. The reinsurance policy is recognised as a special-purpose asset in the sense of the HGB. In this way, balancing is possible and with it a balance sheet contraction.

What is not to be recommended:

To annul the pension.
In this case there would be subsequent taxation of the previous tax advantages and, at the same time, the capital being freed must be taxed a second time. Therefore, this is a very poor solution.

Gussmann is the right partner for this task:

• For 30 years we have had a great deal of experience in the optimisation of pension plans./li>
• Gussmann is independent of insurance companies. An important factor when advising you.
• We can select from more than 80 insurers, provident funds and pension funds
• We provide the same service for international corporations with whom we work.
• Gussmann employs over 40 qualified staff in Osnabrück and Leipzig.
• We are in the third generation of an owner-run business.